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Costs, price drops, farm finances

On the study saying that “depending on structure and crop prices, these programs could cost the taxpayer as much as, or more, than the direct payments program they would replace: $8 (billion) to $14 billion a year over the next five years.”

“Shallow-loss programs have the potential to be very costly if prices move from recent high prices back towards the levels they’ve averaged over the last 15 years. Our numbers suggest the annual cost in the range of $6 billion to $7 billion for the Senate bill.

“If prices remain where they’ve been in the last four or five years, our numbers are very similar to those developed by the CBO (Congressional Budget Office). If prices stay roughly where they are now, the program would cost around $3 billion yearly.

“But if prices return to historical levels – if we ease up on the ethanol mandate, which is well within the bounds of probability – then we’re looking at very substantial expenditures and a fairly high likelihood they’ll exceed the $4.9 billion, or so, currently being spent on direct payments. If in 2013 prices move back to long-run normal levels, we’d be looking at $5.5 billion to $6 billion a year in outlays for the Senate’s shallow loss program.”

More on price drops…

“We’re not trying to tell anyone ‘gee, prices are going to stay where they are’ or ‘they’re definitely going to drop.’ But if the ethanol mandate is politely forgotten about – the current position of many in the Senate – then we’ll see substantially lower corn, wheat and soybean prices. That’s when shallow loss gets to be very expensive.

“Yesterday, during a presentation we made on the Hill, someone asked ‘will the prices assumed (in the report) for a lower price scenario cause major losses for every crop?’ The answer is no.

“Whatever the story coming from the farm groups, we looked at variable costs of production. And when you look at the costs of planting and harvesting a crop, they’re well below, on per-acre and per-bushel bases, the low prices we considered.”

On the financial health of farms…

“It simply isn’t the case that agriculture is in dire straits. It isn’t the case that even one bad year for a farm would cast it into penury unless the operation is being very poorly managed in the first place. Most farms are exceptionally healthy right now in terms of finance. The average debt-to-asset ratio is less than 9 percent nationally.

“The guys who would get the big bucks in the (current) programs, those who get 80 to 85 percent of payments, would get roughly the same amount under shallow loss. They have net worths in the multiple millions of dollars. And we’re not talking about corporate farms but about 1,200 acre corn farms in Iowa or a 5,000 acre family farm in Montana.

“Farmers aren’t stupid. They’re good business people and their financial position is actually healthier than almost any other sector in the economy right now. That wouldn’t change even if prices moderated substantially.”